It's Not About Qe, But J-o-b

It's Not About Qe, But J-o-b

Unemployment figures in France and the US rose, the Eurozone dropped slightly, and the UK saw record job creation while ECB president Mario Draghi unveiled promising economic forecasts and announced €60 billion in bond purchases.

By Vikram RangalaThursday, March 5, 2015 - 00:00

It's Not About Qe, But J-o-b

Tomorrow the US Labor Department will release a much-anticipated Nonfarm Payroll report, after today's jobless claims number came in higher than expected, and as speculation continues about when the Fed will begin raising interest rates.

Nadex, by the way, offers an event binary option on the monthly Nonfarm Payroll. It's a way of removing all the market reaction to the question, and focusing on the number itself. Some months the market makes a big deal of the NFP; other months it barely yawns.

The US has some unique positives

In February, US jobless claims jumped to their highest level in nine months. Despite this negative news, the US has a lot of positives that are not shared by the rest of the world. 2014 was the best year for job creation since 1999. US unemployment is barely half that of the Eurozone.

The Federal Reserve has pointed to two factors as key in its decision about when to raise interest rates: inflation and wages. They want inflation up to 2% so businesses start generating more profit from sales. They also want people to be earning more so they can afford to buy more.

The latter has been the big challenge for the US. While the US economy has created jobs for sixty months straight since Pres. Obama's 2009 stimulus passed Congress, real wages have been largely stagnant. The purchasing power of the average wage earner is the same today as it was in 1979.

The deeper problem of wage stagnation

During the course of those 36 years, it has been worse. Real wages (adjusted for inflation) declined throughout the 1980s and early 1990s, grew in the Clinton-Gore years and have been choppy in this century. The Fed has been pretty clear that they want wage growth to be in a clear uptrend before they start raising the cost of borrowing.

David Wessel, director of the Hutchins Center at the Brookings Institution, told NPR today that consumers are showing signs of not only receiving, but taking advantage of the limited wage gains they have already seen. White-collar workers in particular, have seen their salaries increase. Another crucial change from a year ago is the near-halving of home energy and gas bills. the extra money at the end of the month amounts to a de facto pay raise. Or if you prefer, tax cut.

Either way, Americans are eating out more and paying down debt. What they haven't started doing, however, is buying durable goods like fridges and furnaces or American-made goods in general. When you add that a strong dollar makes US products more expensive for overseas customers, it's easy to see why US factory orders fell for a sixth straight month in January. It's a great example of how everything's a web. Manufacturers can't sell their goods, so they can't raise wages, so people can't buy new stuff, so manufacturing suffers even more.

France: similar to the US, but different

France's unemployment number of 10.4% in the final three months of 2014 was the big surprise for most analysts, because of the size of the increase. France's problems are often blamed on their tight regulatory culture. Some might call it repressive; others call it progressive.

We might as well mention another argument that always comes when discussing France's employment rate. It's usually some variation of, "But don't the French hate working anyway?" The oft-quoted short work weeks and long lunch and summer breaks make some people call the French lazy, while others point to studies that show French workers to be among the most productive in the world, which they are.

France's factory output is dropping almost as dramatically as its unemployment is rising, faster than that of Greece in fact. That makes it easy to poke fun at new French laws like the measure designed to fight "planned obsolescence" by requiring manufacturers to promise to supply spare parts for all products and soon, to repair or replace them for free for the first two years. Nobody likes planned obsolescence, but this law will be too expensive for some manufacturers.

Jobs and justice

Behind the catch-all number of jobless is the deeper question of who is hardest hit by unemployment. As France faces the aftermath of the Charlie Hebdo murders, the office of Prime Minister Manuel Valls recently reported that young men whose parents came from Sub-Saharan Africa are unfairly and systematically discriminated against by employers. The world is far too familiar with the dangers of having a large population of resentful, jobless young men.

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